Key facts to consider when selling your business

Transcription

1 Key facts to consider when selling your business

2 Overview You will find limited information within the public domain on the subject of selling a small or medium sized business. This lack of information can create uncertainty for business owners on whether the time is right to sell their business and leaves many with no clear direction as to how best achieve the maximum exit value. Often, business owners will instruct their accountants or solicitors to sell their business; this often proves to be a mistake. Finding a buyer for a private company is not a legal or accounting function, it is, first and foremost, a sales and marketing matter. If you instruct the wrong partner to sell your business, the result could be costly and time consuming. APV Consulting specialise in selling private companies. We are not a firm of accountants or solicitors; we are brokers with a business background and strong direct marketing principles. Our proactive marketing methodology is geared to identify, target, and communicate with multiple potential buyers on behalf of our clients. Most business owners we work with realise that the best way to achieve the maximum deal value is by selling to a qualified buyer who is motivated by strategic business reasons. The more qualified buyers we introduce, the more control you retain, and the more control you retain, the better the price and deal terms. 2

3 1. When to Sell It is normal after many years in a business to desire to do something different; as you get older your priorities and objectives can change. Maybe you have taken your business as far as you can, or perhaps major investment is required to enable the business to enter its next phase. If you are considering selling, or even a merger, it is important to establish a clear exit objective, acceptable deal options and how you are going to find the right purchaser who will recognise the true and best value of your business. All businesses by default are in either a rising or declining cycle, so timing and preparation for sale is crucial. Preparing your business for sale will speed up the exit process, and is likely to enhance the final sale price. Selling a medium sized business normally takes 9 to 18 months, sometimes longer, so do not sell on a whim; ensure that you prepare and plan your exit. The better prepared you are, the more likely you are to find the right buyer and reach a better final deal. Use the period of marketing and negotiation to your advantage by keeping focus on the core business, as, if the business can demonstrate continued growth during this period, then strategic buyers will be encouraged and more likely to agree a premium deal. However, remember, a buyer purchases a business for what it can do for them going forward, not its history. 3

4 2. Valuation & Multiples There are a number of ways to value a business, often the valuation is based on a simple mathematical formulae, i.e. multiple of earnings or net asset value etc. These traditional methods of valuation are all based around Return on Investment (ROI). The average sale for small to medium sized privately owned businesses is based on a multiple of 7 times adjusted earnings. Unfortunately, there can be a lot of guess work when valuing a business, but the fact is a business is only worth what somebody is prepared to pay for it. Buyer competition drives the price not the valuation. Our marketing and business methodology is focused towards achieving a better than average multiple for your business. Research shows that the range of multiples actually paid for businesses starts at 3x and grows to over 24x adjusted earnings. Our process is geared to help you identify a number of potential purchasers and to build buyer competition, this approach is the best way you can achieve a strategic for your business whilst keeping control of the exit process. Good business purchasers buy a business for its client base and future prospects not its history. It is not uncommon for buy competition to increase low end offers by a factor of 2 or 3 times. 4

5 3. Waiting for a Strategic buyer to find you You might also win the lottery! Selling a business at a strategic is not about chance. Most businesses receive an approach from time to time, often from competitors, industry contacts, and business brokers. It can be flattering to be targeted but do not forget, despite what they may say, they have initiated contact for two primary reasons, both with the same aim: to be in a position of control and to avoid competition with other bidders, so they may apply downwards price pressure. If the deal is not on their terms they will walk away. Often these acquirers are large companies, driving their success by buying companies at undervalue. Many brokers work for the purchaser only and will line up a number of possible targets for acquisition. In this scenario the purchaser has full negotiation control over price and terms - a situation to be avoided where ever possible. If you intend to sell you must seriously consider your exit options, a strategic will only be achieved by confidentially and proactively marketing your business to find a strategic buyer. Waiting for a buyer to find you makes the negotiation purely about price, many business owners will confidentially market their business to establish a true/potential value as an alternative to the traditional valuation models provided by their accountants or offers from unsolicited approaches. Maybe you have a business already grooming you for acquisition? Knowing what other businesses would be prepared to offer will again put you in a position of strength. It s your business and you have every right to sell for the best deal possible. 5

6 4. Buyer Research Many accountants and solicitors produce a detailed Sales Memorandum for their clients, normally a very professional and well constructed document, which they will post to 10 or 15 potential acquirers. For a seller looking to receive a strategic offer for their business, this traditional approach and limited marketing is simply not enough in today s competitive business environment in order to identify multiple strategic buyers. We identify and qualify as many prospective purchasers as possible, normally 200 or 300 targets from our bespoke research and in-house database. Our targeting methods will include both competitive and complementary businesses, plus our active contacts in the international finance sector (Private equity / V.C). When researching prospects we look for strong business synergy to enhance the appeal and value of your business. The more qualified bidders we introduce to your business, the greater the exit deal. 6

7 5. Buyer Contact The traditional approach is to send a detailed prospectus / Sales Memorandum to 10 to 15 targets. The prospectus can be 70 or 80 pages of historical information written buy the accountant or solicitor. The preparation of this prospectus will take time and money, often this is the only marketing that takes place and the belief is that the prospectus alone will sell the business. Prospectuses do not sell businesses and they should not be produced with that sole aim. Sales documentation should be produced to confidentially introduce a business opportunity and contain just enough information to initiate a meeting. It is important not to give too much information early, historical information is important but leave the majority of that until a later stage. The document needs to focus on the business benefits, highlighting strengths and opportunities, and creating an appetite for the acquirer. It cannot be stressed enough, that a good strategic purchaser is buying future potential, not past performance. 7

8 6. Deal Negotiation You need to negotiate from a position of strength, one of the strongest positions you could be in is when you have a choice of potential strategic acquirers. In the early stages of negotiation every purchaser wants to pay the least amount possible to get your business. To retain control and to achieve a strategic you need to create a competitive, multi-party, bidding situation; negotiation with a single interested party needs to be avoided at all costs, as this will almost certainly apply downward price pressure and non favourable terms. Finding the true and best value of your business is an art not science. Through our research and comprehensive business marketing, we aim to support your position by identifying a number of potential bidders. We will negotiate on your behalf if you require, or support you if you want to carry-out the negotiations personally. We will assist you by exploring buyers motives (as this will assist more in determining an ultimate price, rather than the method of valuation by multiples of profits ) we will support business values, and ensure that a prospective buyer knows you have credible alternative options. Choice will ensure that you not only sell for the right price, but also on the right terms. 8

9 7. Conclusion Most people do not proactively market their business, they hope that good buyers will find them this rarely happens. Selling a business is similar to selling a high value product or service. You will need a pipeline of good qualified prospects that will eventually filter down to a shortlist of qualified purchasers. Take a proactive stance from the start; cutting corners on the research and marketing could cost you hundreds of thousands if not millions. Promote and market your business professionally, create a market of qualified and financially strong buyers, and never negotiate without a choice of potential buyers. Sell your business for its true and best value - you only sell it once! 9

10 8. Contact Tony Vaughan - Managing Partner Mob: APV Consulting Fides House 10 Chertsey Road Woking Surrey GU21 5AB United Kingdom t: +44 (0) f: +44 (0) e: info@apvc.co.uk Free Consultation Please us at info@apvc.co.uk one of our advisors will contact you to arrange for a Free and No Obligation Consultation. This meeting is confidential and there will be no pressure to engage our services. Alternatively call to discuss our services in confidence. 10